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Wednesday, 24 July 2013

As you probably know by now, financial professionals don’t
really like me. Quite a few IFAs have actually called me a conspiracy kook and
that I’m spreading information which is misleading to the public. I still find
this amusing considering all I’m doing is spreading cold hard facts. Facts
which the media doesn’t know or just won’t publish. This includes the Financial
Times by the way. Also I still haven’t met a financial professional who predicted
and prepared for the 2001 Tech collapse or the 2008 meltdown. And just like
those instances, I’m still yet to meet one who is preparing for the mother of
all crashes, the crash of 2013/14/15/16/17/18. Unfortunately I don’t have a
crystal ball and so I can only forecast this for sometime in the next 5 years,
but this one will be many orders of magnitude greater than the 1929 Great
Depression. How do I know? Trends. But this will be a topic for another
edition. This rant is solely for Government Stats and was sparked due to a
twitter conversation I was having with an IFA and he said that when investing
you can and should only plan using the Government figures as they are the
facts. Now this is incredibly short-sighted on his behalf and if he did a tiny
bit of due diligence instead of blind trust, he’d see my point. So here are the
main lies:

Inflation

According to the Government, UK inflation right now is 2.7%.
Now this is the most farcical of all stats as it’s becoming almost common knowledge
that REAL inflation is near 10% now. The way they calculate inflation is by
taking a metaphoric ‘basket of goods’ which the public buy from day to day like
bread, milk, cars, iphones and CDs etc. (But
funnily enough, not rent or houses. They used to, but they took it out of this
calculation in 1983 as they started to inflate the housing market). So they
just compare the prices of this basket to last month, last year, last 5 years
etc and plot a graph. So right now they’re telling us it’s 2.7%. Well what they
fail to realise or purposely ignore is that EVERYTHING in that basket is now
smaller or of less value than previous times. For example, let’s take a
Snickers bar (my favourite). In 2003, they were on average 30p. But now, they
average around 60p. In fact I’ve spent around 90p in some places, so in 10
years, the price has increased by 100% minimum! AND they are all now 7.2%
smaller. This same stat applies to everything else in the basket. So when you
crunch the numbers, REAL inflation is near double digits.

GDP

Recently the US GDP calculations have been changed. They are
now including Research and Development (R&D) spending as part of the
revenue. Now this is absurd. The US spends more money on Military (R&D)
than every country in the world combined. Even their medicine R&D dwarfs
other nations. Now it could be argued that medicine R&D could produce more
efficient medicines which would positively bring more revenue in, but it’s
negligible. Military R&D has next to no productive use (other than for war)
and so this ‘ploy’ is something which will make the US Debt to GDP ratio not
look as bad as it really is. They’re the only country in the world to do this
but it probably won’t be long before the UK follows suit in order to hide our
problems.

Jobs/Unemployment Data

This is a huge topic which I could ramble on for but in a
nutshell, when calculating these figures, they are now on purpose stretching
the parameters of what a full-time employed person really is. They are now
counting people with a ‘part-time job but are seeking a full-time job’ as
‘fully employed’. They are including some forms of charity/volunteer workers as
‘fully employed’ many other profiles. But they’re doing it on the other end of
the scale as well by classing some people without a job but are seeking
employment as ‘part-time’ employed and so on. So they’re trying to make these
figures show that unemployment isn’t as bad as it really is when the poor/rich
divide is increasing dramatically! Just have a look at the BBC Documentary
‘Skint’ – it’s shocking but a real insight into the UK’s deprived areas.

Housing Data

Again, another topic which I could bore you on but this one
is probably as laughable as the inflation data. For some reason the Government
likes to promote to the public that a rising housing market means that the UK
economy is improving. And as the public are grossly ignorant with these and
investing matters, we just nod and accept what we see in the news etc. So 2
points here: i.) The housing market is NOT a reflection on how our economy is
doing, and ii.) The Government is now openly trying to pump up this market
again with 95% mortgages! Also when you look at US housing data that’s even
more of an exaggeration. What they fail to show us is that the Fed is buying up
$85 billion a month of Mortgage Backed Securities, other toxic bonds and also
at least 70 000 empty homes per MONTH using proxies.

So there you go. Hopefully you can now see that we need to
at the very least question what we get told. Housing, employment, GDP and
inflation data is rigged which I hope I’ve demonstrated and that’s only the tip
of the iceberg. If they are rigging interest rates, imagine what else they are
doing. So when you’re next going to buy a mortgage, invest in the stock market
or pensions etc, just please do a double check of REAL adjusted data, not
nominal data which gets published. www.ShadowStats.com
is a great site for real data…

As a nation, it seems as though we're doomed to repeat our
past failures. It feels as though we're living in 2005 all over again as the
Government has decided to try and artificially pump up the housing bubble
again! Just in case you weren't aware, one of the main reasons for the 2008
Melt Down was because the US and UK Governments were inflating the 'Sub-Prime’ market.
This basically means that they were giving pretty much anyone a mortgage
whether the borrower could afford the mortgage or not.

So fast forward to 2013, the UK has got into bed with the US again with another
stinking policy and is now offering 95% mortgages.
This may be great news for the 1 million renting young couples (18-35 years
old) in the UK who have been refused a mortgage within the last 5 years, but
when you really investigate things, it has shockingly
awful consequences for the new home owners, the future housing market and the
Government.

Reports show that this 95% mortgage scheme has received great interest from the
public. This isn’t surprising considering that we in the UK and US are
literally obsessed with owning a home due to the Thatcher-Reagan era starting
the theme that everyone should be a homeowner. This isn’t the case with other
countries around the world. Even on our doorstep, France and Germany are
predominantly renters. Most people I speak to on this subject all follow the
same thinking - ‘Rent money is throwing
money down the drain when it could be used to pay off a mortgage’. I don’t
exactly agree with this mentality (but that’s another topic). So now these 1
million couples are rushing in to buy a new house, what does this mean? What is
likely to happen? Why is this bad for all parties?

-Bad
for the new home owners. The majority of the homes which come with a
95% mortgage are new builds. Although attractive on the face of it all, these
new home owners are moving into houses which are rushed into construction,
composed with the cheapest materials and built with shoddy tradesmanship. Due
to targets and deadlines, a large percentage of these houses experience teething
problems down the line. Just speak to
any builder or tradesman and they’ll tell you how crud these houses are and
that within 2-10 years, serious work will be needed on them. Also on top of all
that, the new homeowners are instantly 20% down at the very least. In order for
these building contractors like Bovis etc to make a profit out of this, they
have hiked up the premiums for each house. So
you’re using extreme financial leverage to buy an overpriced shoddy house which
will require on-going repairs down the line and you’re already in negative
equity.

-Bad
for the housing market.It’s likely that the UK housing market will
temporarily boom in prices due to this Government scheme. Eventually the
letting side of the property market will wane as all of these renters become
home owners which will make rents slide (good for renters I guess). However
just like we’ve seen multiple times already, in order to curb this rapid growth
in house prices, the Bank of England
will be forced toraise rates. This
is another bad thing for these new home owners.

-Bad
for the Government. Due to the raising of rates, the UK will end up
more in debt as the interest on our £1.2 Trillion debt will increase greatly,
mortgage repayments will go up and those on a Standard
Variable Rate or tracker mortgage will get severely burned! The
UK will be a repo nation.

Most people fail to stress test their property portfolio or
mortgage repayments properly so here's my quick rule of thumb to see whether
you will be able to keep the Bank from repossessing your house or not:

1.) On a £100k house, for every % rates go up,
your monthly mortgage repayments go up by £83. So on a £200k mortgage, if rates
went up by 1%, you'll have to fork out an extra £166 per month if you don't
have a fixed rate mortgage.

2.) UK average rates are between 7-9%, so at the very least, let's work to 7%. So if
you have a £200k mortgage and rates rise by 7% (which I can GUARANTEE it
will happen), can you afford to pay an extra £1162 per month for your mortgage?!
In fact, where would the UK find an extra £301 Billion to service this
increased interest? – Fancy new taxes…

If the answer is no to that
last question, please have a serious
rethink with your IFA or mortgage advisor. I don’t give advice
(and never will), but a straight forward solution to this pending problem would
be to fix your rates for as long as possible. Definitely longer than 5 years!
Rates are at rock bottom now and they can't go any lower. But one thing is for
sure, rates will go up to historic averages at the very least and when this happens, people will lose their
homes so please make sure you spread the word and to just question your current
situation…